Opinion / Op-Ed Contributors

Re-establishing global economic cooperation

By Xiao Gang (China Daily) Updated: 2011-10-15 07:27

Re-establishing global economic cooperation

The contagion fears of the European debt crisis have kept the euro close to a nine-month low against the US dollar, despite the fact that Europe's finance ministers met in Luxembourg on Oct 4, and agreed to shore up eurozone banks being shut out of the markets and relying on the European Central Bank (ECB) for liquidity.

For now, few people deny that the renewed anxiety in the United States and Europe is a big risk weighing on sentiments about recession and unemployment. On a higher level, the bigger risk is the time-consuming arguments and the disturbing lack of global policy coordination.

Unlike in 2008, when world leaders from advanced and developing nations alike swiftly launched stimulus packages of fiscal and monetary measures, in 2011 the landscape is very different. The spirit of cooperation has been replaced with a climate lacking urgency and coherence in policy coordination and joint action has been replaced with a lot of criticism and quarrels among countries.

It is very important and urgent for politicians, regulators and bankers to return to the cooperative days of 2008, further raising the level of global policy collaboration to meet the newly emerging international challenges.

Admittedly, today's situation is different from the 2008 crisis. Four things must be dealt with in the US and Europe: growth, unemployment, the sovereign debt crisis and the banking crises. Moreover, these factors have materialized simultaneously and interact with each other, making the situation more complex.

It seems apparent that policymakers are reluctant to move forward quickly because of their domestic politics. The growing hostility of taxpayers, lawmakers, interest groups and the public to the bailout schemes and austerity measures has led to social instability in some countries, such as the ongoing anti-Wall Street demonstrations in the US and previous demonstrations in Greece. Therefore, some politicians are being forced to rethink what they have done over the past three years and have adopted a wait-and-see attitude.

Sadly, given that the bold fiscal and monetary stimulus used in responding to the 2008 crisis is approaching its limits, there is little policy room at present. From Washington to Athens, there are many heated debates about public debts. But the concern about the unsustainability of debt has overwhelmed the focus on immediate economic growth and banking rescues. Unsurprisingly, the policy priority has shifted toward building a credible fiscal consolidation over the medium to long term.

To achieve global policy collaboration, it is imperative to enhance policymakers' credibility and responsibility. Politicians should make clear what must be done immediately to save the euro and what can be done in the long term. The most imperative requirement is to stop the debates as soon as possible and act decisively to expand the firepower of Europe's rescue fund, ensuring that eurozone countries can continue to borrow at affordable rates and that governments always stand firmly behind their banking systems.

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